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Brexit: Legal capacity and party capacity of a British limited company

A British limited company with its administrative headquarters in Germany cannot be the bearer of rights and obligations: it does not have legal capacity or party capacity in Germany and therefore cannot conduct legal proceedings here. This was recently decided by the Munich Higher Regional Court (“OLG”).

The OLG Munich has therefore taken a clear position on the question, which has not yet been decided by the Federal Supreme Court, of whether a British limited company with its administrative headquarters in Germany should continue to be recognized as having legal capacity in accordance with the formation theory developed by the ECJ (European Court of Justice) or whether the so-called real seat theory applied by the Federal Supreme Court to companies from third countries should apply: Upon expiry of the transition period on December 31, 2020, British limited companies registered in the United Kingdom will no longer be able to refer to the freedom of establishment under EU law. If the limited company has its administrative headquarters in Germany, the question of whether it has legal capacity and the capacity to be a party to legal proceedings is determined in accordance with German law.

Background: Rejection of the application for a temporary injunction due to the Limited's lack of party capacity

The judgement of the OLG Munich is based on the following facts: A British limited company with its administrative headquarters in Germany had applied for an injunction to enforce a claim for injunctive relief against a competitor before the Munich I Regional Court. The Regional Court dismissed the application for an injunction because the limited company was unable to prove that its actual administrative headquarters was in the UK and not in Germany, as claimed by the respondent. In the absence of an administrative headquarters in the UK, the applicant does not exist in Germany as a "limited company" and is therefore not legally capable of acting and being a party to legal proceedings here.

The applicant appealed against the decision of the Munich Regional Court I to the OLG Munich. The OLG confirmed the decision of the Regional Court and dismissed the appeal as unfounded.

The judgment of the OLG Munich dated August 5, 2021 - Case No. 29 U 2411/21 Kart

The OLG Munich stated that, according to the so-called seat theory, the law of the state applicable at the registered seat of the company is to be applied to a British limited company in Germany. The seat is to be understood as the actual administrative headquarters. According to the so-called Sandrock formula, it is located at the place where the company is actually active and where the fundamental decisions of the company management are effectively made and implemented in current management acts.

It is irrelevant where the company is taxed. Even provisions of trade law, such as the definition of a German branch in the case of cross-border provision of services pursuant to Sec. 4 (3) of the German Trade Regulation Act (GewO), are not relevant.

In the event of a dispute, the party and legal capacity must be proven by appropriate evidence. The OLG Munich did not accept an invoice with a business address in the UK as proof of an administrative seat in the UK.

After the Brexit, according to the OLG Munich, the real seat theory is to be applied to a British limited company with its administrative headquarters in Germany. Its legal capacity and capacity as a party is assessed exclusively according to German law. However, German corporate law only provides a limited number of corporate forms (so-called numerus clausus of corporate forms). Other corporate forms are not recognized in Germany if the company is managed out of Germany, i.e. has its effective administrative headquarters in Germany.

The real seat theory only does not apply if international agreements applicable to Germany determine otherwise, such as the freedom of establishment guaranteed for EU member states (Art. 49, 54 TFEU). With the implementation of the Brexit, however, limited companies registered in the United Kingdom can no longer refer to EU law.

According to the decision of the OLG Munich, the trade and cooperation agreement concluded between the EU and the United Kingdom on December 30, 2020 does not grant the British limited company a legal position equivalent to freedom of establishment. It does not contain any provision according to which the British limited company, if it does not have its administrative seat in the UK, must continue to be recognized in other member states even after Brexit.

Note: Consequences of the Brexit for a British Limited Company with Administrative Headquarters in Germany

The clear position of the OLG Munich on the question, which has not yet been decided by the Federal Supreme Court (Bundesgerichtshof), if the real seat theory applies to companies with their registered office in the United Kingdom as a third place or whether the incorporation theory should continue to apply, is to be welcomed. It corresponds to the prevailing opinion in Germany.

The decision of the OLG Munich shows the importance of the effective administrative headquarters and that this is to be determined solely according to the actual exercise of the management power of a company. The law under which a company is taxed and the concept of establishment under commercial law are not relevant for determining the effective administrative headquarters.

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